When is it worth refinancing
When is it Worth Refinancing?
[Music]
charlie is on the line charlie's in
orlando hi charlie welcome to the dave
ramsey show
uh good afternoon dave and rachel how
are you doing great how can we help
um i'm looking at refinancing hopefully
refinance our home
our mortgage we have a we have currently
have a 15-year mortgage
uh the balance is 268 000
uh at a 4.5 percent
yeah a monthly payment uh p i p and i
is about two thousand we do have a
escrow fund so our
uh total monthly mortgage payment is uh
two thousand eight hundred eighty eight
dollars uh
we can refinance down to a two-point
round of 2.7
and um but we'd have to increase
um our balance up to about 284 thousand
for the closing costs and uh extra uh
escrow money that they collect you gonna
stay in the house
yeah we're looking to stay in it uh we
just bought it it's a kind of our dream
home
they're saying the closing costs are
fourteen thousand dollars
well closing costs about 67 but they're
wanting to collect an extra
an extra seven for uh for escrow
oh well that's not it that's not lost
money though that's not a cost
and you'll get your escrow back you've
got an escrow account now that you'll
get back that'll offset that
yeah so basically you're talking about
from 4.5 to 2.7 so if you
round that say 2 savings a year right
yes 1 on 268 is 2680
two percent will be five thousand
dollars plus right
okay per year in interest saved and so
if your closing costs are seven thousand
dollars after a year and a half you've
made your money back
are you going to pay this off or sell it
within two years
no okay then you're going to make your
money back and you'll be in the in the
in the black on it right you see what
i'm doing
yeah definitely payment change doesn't
matter
the escrow doesn't matter because you
don't lose that money that money still
retains your position it's the cost of
the refinance
versus the interest saved
on the loan and your interest saved on
the loan is approximately two percent
per year
so around five thousand dollars a year
on 268 thousand dollars you're going to
save
in interest and
if it's costing you seven thousand
dollars to do that
that means after year one you've
recouped almost all of the seven
thousand with a five thousand dollar
savings
now the payment mayor the cash flow and
the payment mayor may not reflect that
because sometimes people move from a 30
to a 15 they take a higher payment too
but the payment all of that payment
difference is all going to principle so
that doesn't matter either
the the so the analysis the break-even
analysis on it
is interest saved divided into
cost closing costs and do you recoup it
fast enough
that it that it looks like fun and i can
tell you this looks like fun
yeah because we save five grand each
year as it goes on yeah
and of course the faster you pay it off
if you're gonna pay off the mortgage in
three years
for some reason or another you wouldn't
fool with it yeah yeah cause you know
you might say four or five thousand
dollars net
out of all out of all this stuff flying
around everywhere and all this trouble
and i wouldn't screw with it if that was
the case but or if you're thinking about
moving in the next two years i wouldn't
do it
but where you can recoup it all in less
than two years
and you probably have a seven to a ten
year window to pay this off
you're gonna be saving five grand all of
those years after that recoup then yeah
you do this refinance it makes a lot of
sense
good question man we appreciate you
joining us refinances are really hot
right now i was about to staff like we
get questions like that all the time
yep they're there it's a real estate
market's booming
in the middle of this pandemic it's
booming
you can't i mean i know four people put
houses on the market last week and
all of them sold in two days yeah and
that's in the nashville area but i mean
there's areas where it's not there's
more draconian shutdown stuff going on
in some of these areas that some of you
are in but
areas like tennessee that are open it is
booming
it's a freaking boom town part of it is
a bunch of you are leaving those states
where they're not letting you do
anything and you're coming here
which we love having you that's great
thank you for joining us here
you can leave your vote back there
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